Exploring regional differences pork production costs:
perspectives from the agri benchmark initiative
Modern agriculture has been exposed to an increasingly
globalised society. Access to the international market has
provided consumers with access to a wider range of
products, at competitive prices. For the agricultural
producer, competitiveness within the global context has
become paramount, as increasing trade globally increases
the level of competition faced by domestic producers. Pork
remains the most consumed meat type globally and over
the past 8 years, global pork imports has increased by just
over 5% per annum; a fact which can be ascribed to
competitive production in countries where surplus
production of feed grains has reduced the cost of producing
pork, as well as imbalances in demand across regions
where income levels and cultures are vastly different.
Different regional preferences have allowed producers to
maximise the value of a complete carcass through trade,
with different cuts in high demand in different regions.
South Africa has been no exception; particularly meat
imports have increased substantially over the past decade,
with poultry and pork accounting for the greatest increase
in import levels. In South Africa, pork remains a small
industry within the larger meat complex, however
consumption has expanded rapidly over the past decade and
with continued expansion of demand projected for the next
decade (BFAP, 2014), the ability to meet growing demand
with domestic production will ultimately depend on the
competitiveness of the value chain in delivering high
quality products to the consumer. In 2013, BFAP evaluated
the competitiveness of the entire pork value chain in South
Africa, however the agri benchmark initiative, in
partnership with the Thunen Institute in Braunchsweig,
Germany provides an opportunity for an in-depth
comparison of primary pork production in South-Africa
relative to its most important global competitors. The agri
benchmark methodology is based on a standard operating
procedure, used for the identification of ‘typical farms’ in
the main production regions of the countries that have
partnered in the network. These typical farms are not
considered nationally representative, but rather to be
representative of the area in which they are situated. Whilst
not statistically representative, the methodology allows for
a more detailed comparison, whilst the standard operating
procedure and standardised methodology ensures
comparability across regions.
The agri benchmark initiative is a global network of
specialists aimed at improving the understanding of global
farming systems. The pork network is a new inclusion
within the agri benchmark initiative, with the first round of
data being collected in 2013. Currently the pork network
consists of 10 member countries (Germany, France, Spain,
Denmark, China, Vietnam, Russia, Poland, South Africa
and Brazil) which represent 80% of global pork production,
with the aim of including further members in the future. In
South Africa, 3 commercial farms have been identified for
inclusion in the network, in conjunction with the South
African Pork Producers Organisation (SAPPO). With the
pork network still in a developmental phase, a
comprehensive understanding of pork production systems
in the various partner countries was prioritised within the
network, with cost comparisons to be presented upon
finalisation of 2013 data. As such, this article presents a
comparison of both technical and economic efficiency
regionally within South Africa, as well some preliminary
information within the global context.
Relative performance of different production regions in
South Africa
SAPPO (2013) estimates that the domestic sow herd in
South Africa currently stands around 103 000 sows
(compared to 3.8 million in Brazil and 1.1 million in
France) and 7000 boars, managed by approximately 240
individual pork producers. Provincial sow numbers suggest
that the majority of production takes place in the North
West province, KwaZulu-Natal and the Western Cape.
Despite this, 43% of pigs slaughtered in 2012 were
slaughtered in Gauteng, with 15% in KwaZulu-Natal and
13% in the Western Cape (Figure 1). The regions
represented in the agri benchmark study include the
Western Cape, Kwa-Zulu Natal as well as a single typical
farm that represents large scale producers in the central and
northern regions, including Gauteng, North West and the
Free State.
Figure 1: Provincial distribution of slaughters and sow numbers
Source: BFAP, 2013
Technical efficiency
From piglet production to fattening and marketing, several
indicators exist for the measurement of technical efficiency
of pork producers. As an indicator for sow performance and
the efficiency of piglet production, Figure 2 compares the
relative number of piglets produced per sow per year, as
well as the number of pigs marketed per sow per year in the
different regions. Within the central region, the number of
10
8
6
4
2
0
Central Region
Kwa-Zulu Natal
Pre-weaning mortality (%)
Piglets born per sow per year
Western Cape
Post-weaning mortality (%)
Pigs marketed per sow per year
Figure 2: Piglet production efficiency in 2013
Weaning weights and live marketing weights were found to
be similar across the regions, with the KZN farm producing
marginally heavier pigs. Feed conversion ratios of the three
producers showed greater variation however, which is to be
expected given the different formulations used by the
producers, as well as differences in the genetic material
used by the three producers. In the central regions, as well
as KZN, producers mixed their own feed, whilst in the
Western Cape, many of the raw materials used have to be
transported for long distances and hence producers often
choose to procure pre-mixed food commercially. In this
instance, feed costs are expected to be higher as a result of
transportation costs, as well as the margin of commercial
feed producers that must also produce profitably. The
greatest feed conversion was achieved in the Western Cape
(Table 1), where 3.39kg of feed was required to produce
1kg of pork. Despite higher feed conversion ratios, the
amount of meat produced per sow in 2013 was highest on
the central farm, where every sow accounted for an average
of 1757kg of meat in 2013, compared to only 1470kg per
sow in Kwa-Zulu Natal (Table 1).
Table 1: Meat production per sow per year
Meat produced per
sow per year (kg)
Feed conversion ratio
Central
Region
Kwa-Zulu
Natal
Western
Cape
1757.34
1469.80
1695.41
3.63
3.89
3.39
Figure 3 illustrates the cost of producing a kg of pork
across the three regions, as well as the relative cost of feed
per ton within each region. In this context, cost of
production is also influenced by the technical efficiency
parameters as the cost per kg of meat produced will be
lower when the amount of pork produced per sow is higher.
Despite the fact that the best feed conversion ratio was
recorded in the Western Cape, feed costs per kg meat
produced remains lower in the central region due to lower
feed prices. The average cost of feed on a per ton basis was
significantly lower in the central region relative to the two
coastal regions (Figure 3).
25
5,000
20
4,000
15
3,000
10
2,000
5
1,000
0
Central
Feed
Overhead Costs
Avg cost of feed per ton
KZN
R / ton
29
28
27
26
25
24
23
22
21
20
19
18
Cost of production
The importance of technical efficiency in determining
competitiveness cannot be denied, however the cost of
production must also be considered, due to its influence on
economic efficiency. Primary pork producers in South
Africa have taken several measures to reduce the cost of
production, such as mixing their own feed, yet several
factors beyond the control of the producer impact on
production costs. Undoubtedly the greatest variable cost to
the primary producer and therefore the greatest influence
on competitiveness is feed, whilst fuel, electricity, wages
and cleaning materials are other important considerations.
R/kg meat produced
12
Number of pigs
Mortality (%)
piglets born per sow per year was significantly higher,
allowing the number of pigs marketed per sow per year to
be higher than in the Western Cape, despite lower mortality
rates in the Western Cape. Recorded mortality rates were
the highest on the KZN farm and as a result, the central
farm marketed 5 piglets per sow more than the KZN farm
in 2013.
0
Western Cape
Other Variable Production Cost
Fixed Costs
Figure 3: Pork production costs across regions
Reduced feed costs can be attributed to factors such as
differences in formulation, as well as the cost of raw
materials. In the Western Cape, feed is procured
commercially, in pre mixed form and hence the expectation
would be for feed to be more expensive, however the
highest feed costs on a per ton basis was recorded in KZN,
where feed is mixed on farm. Figure 4 also illustrates that
raw material usage is very similar in KZN and the Central
region, both regions where producers mix their own feed on
the farm. The difference in the cost of feed is therefore
attributable to the cost of raw materials, rather than
differences in the raw materials used, providing a clear
indication that proximity to the main feed grain producing
regions provides a significant cost advantage for pork
producers.
Other
Salt
MCP
Feed lime
Fish Meal
Lucerne
Lupines
Sunflower oilcake
Canola oilcake
Soybean Meal
Wheat Bran
Central
KZN
WC
Yellow Maize
Figure 4: Regional breakdown of raw material usage for pig feed
In the Western Cape, raw material usage in feed rations
differed significantly from the other two regions, as usage
of locally available raw materials such as lupines and wheat
bran is much higher, while yellow maize and soybean meal
usage is lower in order to increase the competitiveness of
feed costs. Nevertheless, yellow maize still accounts for
more than half of the total feed ration and given the
transport costs, feed rations remains substantially more
expensive than in the central regions.
R/kg meat produced
Apart from feed costs, the regional differences in other
variable production costs are marginal (Figure 5).
Veterinary, AI and transport costs are almost identical,
while small differences are evident in labour costs, which
are marginally higher in Kwa-Zulu Natal. The observed
differences are minor however and hence the low variable
production costs in the central region relative to the coastal
regions can be attributed to improved technical efficiency
as well as reduced feed costs resulting from cheaper raw
materials.
25
20
15
10
5
0
Central
Feed
Labour
Transport
KZN
delivery when pigs are marketed and hence differences in
profitability across regions could result from differences in
production costs, as well as differences in prices received.
While significant variability is evident in the cost of
production across regions, producer prices recorded in 2013
were similar (Figure 6). Marginally higher prices were
recorded in the central region, however porkers are
generally marketed at a premium to baconers and as the
share of porkers in total number of carcasses marketed on
the farm in the central region is higher, higher average
prices per kg are to be expected
Western Cape
Veterinary, Medicine and AI
Energy and Water
Other
Figure 5: Regional breakdown of variable production costs
Profitability
Due to the costs and risks associated with transportation of
pigs to abattoirs, producers have few realistic options of
R/kg
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
25
20
15
10
5
0
Central
Feed
Overhead Costs
Average Price Received
KZN
Western Cape
Other Variable Production Cost
Fixed Costs
Figure 6: Regional comparison of production costs and prices
Margins obtained per kg meat produced were highest in the
central region, where returns were the highest and cost of
production the lowest. Returns in the coastal regions were
similar, however high costs of production in KZN resulted
in negative margins in 2013, while a small positive margin
was achieved in the Western Cape (Figure 6). The benefits
of economies of scale are evident, as the medium scale
producer in KZN recorded a loss, mainly attributable to
high feed costs, while the large scale producers in the
Western Cape and Central regions maintained a positive
margin in a year when feed grains were particularly
expensive as a result of draught conditions. When margins
are tight, as was the case in 2013, scale of production
becomes an even greater advantage. Achieving economies
of scale benefit in a capital intensive industry is costly and
hence the return on investment presents a credible
comparison of economic performance, regardless of the
size of the enterprise. The margin achieved on the central
farm, the largest of the 3, equated to a return of 10.45% on
capital investment. Louw et al. (2011) indicate that
acceptable net profit margins for South African pork
producers are between 10%-15%, with returns greater than
15% considered exceptional. Returns below 10% were
however considered too risky given the capital investment
required as well as the associated levels of risk.
Cycles per year
Piglets weaned per
sow per year
Brazil
France
2.48
2.33
26
26
Germany
25.5
RSA KZN
RSA WC
RSA Central
2.31
2.45
2.4
23.0
24.3
26.2
Given the difference in production systems globally, total
feed conversion ratios calculated for farrow to finish
systems are not comparable to feed conversion ratios
calculated on specialised finishing farms in Germany for
example. In order to compare feed conversion credibly,
feed conversion ratios were recalculated only for grower
pigs, based on feed usage and weight gained in the grower
barn. South African producers performed very well relative
to global competitors in this context, with feed conversion
ratios in all three regions being recorded below the average
achieved in the network. In fact the feed conversion
achieved in the Western Cape was the best recorded for all
producers in the network.
3.6
3.4
3.2
3
2.8
2.6
2.4
2.2
2
AVG FCR = 2.8
Brazil
China Germany Denmark France
Feed Convertion
Poland Vietnam
South
Africa Central
South
South
Africa - Africa KZN Western
Cape
Figure 7: Feed conversion ratios - Global comparison
Feed conversion in the grower barn only was higher in the
central region than in the two coastal regions. This fact is
attributable to the fact that piglets enter the grower barn at a
later stage. Feed conversion performance declines as pigs
grow older and heavier and as such, the recorded feed
conversion in the grower barn of the central producer is
expected to be higher relative to other producers. Starting
weights recorded in the other countries illustrated in Figure
7 were similar to those achieved in South Africa’s coastal
regions.
Feed constitutes the greatest component of variable
production cost and while total feed cost data is not yet
1000
4
3.5
800
3
US $ / kg
Table 4: Comparing breading performance
available from the various partners in the network, Figure
15 relates the cost of the three most important raw materials
used in pig feed, as well as prices received per kg carcass
weight in various countries. As a surplus producer, South
African maize costs compare well with global norms,
however as a net importer, the cost of wheat in South
Africa was higher than any other country in the network.
South African soybean meal was also more expensive than
in European countries, however soybean meal costs
compared well relative to Asian countries (Figure 8). The
highest pork prices were recorded in Asia, particularly
Russia and Vietnam, while South African pork producer
prices reported in 2011 was above EU prices and below
Asian prices.
US $ / ton
Preliminary global comparison
A basic comparison of technical performance of the three
South African farms in the global context is illustrated in
Table 2 and Figure 7. Considering breeding performance,
the large scale producer in the central region achieved
results comparable to top exporters like Brazil, France and
Germany (Table 2), while the two coastal producers
weaned fewer piglets per sow.
2.5
600
2
400
1.5
1
200
0.5
0
0
South
Africa
Germany
Wheat
China
Vietnam Denmark France
Soymeal
Corn
Russia
Spain
Pork
Figure 8: Prices of pork and feed grains in 2011
Germany represents South Africa’s most important trade
partner, with the bulk of imports into South Africa
originating from Germany. Pork production in Germany is
much bigger than in South Africa, with more than 30 000
producers compared to approximately 240 commercial
producers in South Africa. Pork production in Germany is
typically specialised in piglet production or pig fattening,
as opposed to the South African system which is typically
farrow to finish units. The bulk of German production
occurs in the North-Western part of the country (Figure 9).
As a net exporter of pork products, German prices reported
in 2011 were higher than in South Africa. Wheat and
Soybean meal prices were reported lower in Germany than
in South Africa, while maize prices in South Africa were
below those reported in Germany.
References
Bureau for Food and Agricultural Policy (BFAP). 2014.
The South African agricultural baseline 2014-2023.
Pretoria: University of Pretoria.
Bureau for Food and Agricultural Policy (BFAP). 2013.
Evaluating the South African Pork Value Chain. A report
by BFAP for the South African Pork Producers
Organisation. Pretoria: University of Pretoria.
Figure 9: German pork production
Source: agri benchmark, 2012
Concluding remarks
South Africa joined the agri benchmark network with the
objective of measuring and understanding the
competitiveness of primary pork production within the
global context. Whilst some preliminary indications are
presented in this article, the network remains newly
established and hence the benefits of membership will
become increasingly evident in the longer term, as time
series of annually collected data becomes available.
Availability of additional international data will no doubt
result in more meaningful global comparisons and cost
benchmarking, however South African data has already
provided valuable insight into the relative competitiveness
of different production regions in South Africa. A single
year’s data remains a static snapshot however and multiyear comparisons will become increasingly valuable as
annual data updates continue. Furthermore, the data
collected at farm level will be linked to the BFAP baseline
projections through a farm-level financial simulation
model, increasing the available tools to guide decision
making within the sector.
Louw, A., Schoeman, J.J. & Geyser, J.M. 2011 Pork and
Broiler industry supply chain study with emphasis on feed
and feed-related issues. National Agricultural Marketing
Council, South Africa. [Online] Available from
http://www.namc.co.za/dnn/PublishedReports/Commodity
ProductStudies/PerCategory.aspx [Downloaded 2012-0510].